Help Centre

Why electricity is not a rip-off

Despite the manufacturing closure blame game, the cost of actually generating electricity - incorporating that from renewables - is low by historical standards.

Henny 'The Sky is Falling' Penny is multiplying and out in full song, claiming the demise of Australian manufacturing is down to the, apparently, exorbitant cost of energy in Australia, inflated by the influx of renewables.

But is that true and exactly where does the cost lie?

Expanding on my article yesterday I thought it appropriate for this week’s charts of the week to take a historical look at the wholesale market price of electricity generation to see whether it might be responsible for driving manufacturing out of the big states of NSW and Victoria.

Firstly, let’s take a look at historical NSW wholesale prices, adjusted for inflation to 2013 dollars, compared to current ASX Baseload Futures prices for 2015 and 2016.

As you can see, even taking into account the extra cost of the Renewable Energy Target faced by energy intensive industry, NSW real wholesale energy costs are not higher than what prevailed a decade ago before we started seeing manufacturing's mass exodus.

Now of course this leaves out the other big part of the electricity cost equation which is the cost of the poles and wires. This has gone up considerably and is worthy of scrutiny.

But what is clear is the cost of actually generating the electricity, including that from renewable sources, is not spiralling out of control and therefore driving problems for energy-intensive manufacturing in our two biggest states.

The one place where wholesale electricity prices have been abnormally high relative to historical levels (stripping out the effect of the carbon price) over the past two years has been Queensland.

Indeed, average daily prices have exceeded $100 per megawatt-hour for four of the past eight days (and $96 on a fifth day). This is highly unusual given that demand has generally been well below available generating capacity. But this is a function of problems with effective competition and big generators exploiting an internal transmission constraint, not any effect from renewable energy policies.

IMPORTANT: This information is general financial product advice only and you should consider the relevant product disclosure statement (PDS) or seek professional advice before making any investment decision. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about a product. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.